Now 'good enough' wins the defense contract

Network News

The Air Force's decision late last month to award the long-contested, $35 billion aerial refueling tanker program to Boeing ended a competition that had been fraught with controversy. But analysts say the decision may have sent another message to the contracting community: The government isn't necessarily seeking the most capable or "best value" equipment, but rather good-enough equipment with a lower price tag.

Losing bidder European Aeronautic Defense and Space had "a more capable system," said Richard Aboulafia, a defense analyst with the Teal Group. "I don't think even Boeing would dispute that."

Yet, EADS still lost to the lower-priced Boeing proposal. The company's tanker is smaller, meaning it not only costs less but that it uses less fuel, which means it received credit for costing less to operate.

The movement within the government to focus on price and "good-enough" capability over ideal, envelope-pushing systems has been gaining momentum since Defense Secretary Robert M. Gates in 2009 called on the military to forget the "exquisite" platform and instead seek the "80-percent solution," equipment that's affordable and can be fielded quickly and in large quantities.

"They're not going to pay for bells and whistles," Aboulafia said. "That's the clear message here, and everyone should be heeding that message."

The idea of paying less to get less isn't only gaining traction in the halls of the Pentagon. In the information technology world, Vivek Kundra, the federal chief information officer, has been pressing contractors to provide smaller, functional pieces of an information technology system sooner, rather than take on a big contract and fail years later to provide a perfect, complete system.

The focus on cost isn't surprising, considering the tightened budgetary environment. Andrew F. Krepinevich Jr., president of the Center for Strategic and Budgetary Assessments, said price will loom increasingly large as the defense budget shrinks.

What Gates is saying is that "we've emphasized for so long high performance because we really haven't had to worry about cost," Krepinevich said. "Well, that's changed. Cost really matters now."

The Pentagon has been reserved in talking about how EADS and Boeing stacked up when it came to performance versus cost. At a press conference to discuss the award, Deputy Defense Secretary William Lynn, asked whether EADS's tanker provided a better bang for the buck, said only that the Defense Department "went through a process that evaluated war-fighting requirements, evaluated price, evaluated life-cycle costs.

"And the process yielded the result it did, with Boeing winning."

But some industry advocates and officials are pushing back against a cost-focused strategy as short-sighted and risky. They worry that the focus on cost will mean companies have little incentive to invest in new technology and that the government will in fact get less for its dollars.

Malcolm O'Neill, the Army's top acquisition official, acknowledged at a luncheon last week that he recognizes a troublesome trend developing in which innovation is not prioritized over price -- or what he called the "this is good enough" mentality.